Sierra Oncology (SRRA) 10-Q 2018 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2018

OR

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                    .

Commission File Number:001-37490

Sierra Oncology, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-0138994
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

Sierra Oncology, Inc.

c/o 2150 – 885 West Georgia Street

Vancouver, British Columbia, Canada V6C 3E8

(Address of principal executive offices and zip code)

(604)558-6536

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule12b-2 of the Act).    Yes  ☐    No  ☒

As of May 8, 2018, there were 74,311,481 shares of the Registrant’s Common Stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

	Page
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (unaudited)		2
Condensed Consolidated Balance Sheets		2
Condensed Consolidated Statements of Operations		3
Condensed Consolidated Statement of Stockholders’ Equity		4
Condensed Consolidated Statements of Cash Flows		5
Notes to Condensed Consolidated Financial Statements		6
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		21
Item 4. Controls and Procedures		22
Part II. Other Information
Item 1. Legal Proceedings		23
Item 1A. Risk Factors		23
Item  2. Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 3. Defaults Upon Senior Securities		23
Item 4. Mine Safety Disclosures		23
Item 5. Other Information		24
Item 6. Exhibits		24
Signatures		25

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form10-Q (Quarterly Report) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and section 27A of the Securities Act of 1933, as amended (Securities Act). All statements contained in this Quarterly Report other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report on Form10-Q. These forward-looking statements may include, but are not limited to, statements regarding our future clinical development activities, expected timing and results of clinical trials, future results of operations and financial position, our business strategy and plans and our objectives for future operations. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan” “expect,” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section in our Annual Report on Form10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on February 27, 2018, and elsewhere in this Quarterly Report on Form10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements to conform these statements to actual results or to changes in our expectations, except as required by law. You should read this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

As used in this Quarterly Report on Form10-Q, the terms “Sierra Oncology,” “the Company,” “we,” “us” and “our” refer to Sierra Oncology, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted. Sierra Oncology is our registered trademark. The “Sierra Oncology” logo and all product names are our common law trademarks. This Quarterly Report may contain additional trade names, trademarks and service marks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

1

PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SIERRA ONCOLOGY, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share data)

	March 31, 2018			December 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	133,829		$	100,348
Prepaid expenses and other current assets		2,159			1,377
Total current assets		135,988			101,725
Property and equipment, net		144			154
Other assets		303			319
TOTAL ASSETS	$	136,435		$	102,198
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accrued liabilities	$	4,898		$	6,133
Accounts payable		740			1,339
Total current liabilities		5,638			7,472
TOTAL LIABILITIES		5,638			7,472
Commitments and Contingencies (Note 6)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of March 31, 2018 and December 31, 2017; nil shares issued and outstanding as of March 31, 2018 and December 31, 2017		—			—
Common stock, $0.001 par value; 500,000,000 shares authorized as of March 31, 2018 and December 31, 2017; 74,309,681 and 52,395,223 shares issued and outstanding as of March 31, 2018 and December 31, 2017		74			52
Additionalpaid-in capital		766,325			718,751
Accumulated deficit		(635,602	)		(624,077	)
TOTAL STOCKHOLDERS’ EQUITY		130,797			94,726
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	136,435		$	102,198

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

SIERRA ONCOLOGY, INC.

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except share and per share data)

	Three Months Ended March 31,
	2018			2017
Operating expenses:
Research and development	$	8,334		$	8,008
General and administrative		3,420			3,146
Total operating expenses		11,754			11,154
Loss from operations		(11,754	)		(11,154	)
Other income		272			96
Loss before provision for income taxes		(11,482	)		(11,058	)
Provision for income taxes		43			34
Net loss	$	(11,525	)	$	(11,092	)
Net loss per common share, basic and diluted	$	(0.19	)	$	(0.26	)
Weighted-average shares used in computing net loss per common share, basic and diluted		59,722,743			42,596,980

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

SIERRA ONCOLOGY, INC.

Condensed Consolidated Statement of Stockholders’ Equity

(unaudited)

(in thousands, except share data)

	Common Stock				Additional Paid-In Capital		Accumulated Deficit			Total Stockholders’ Equity
	Shares		Amount
Balance—December 31, 2017		52,395,223	$	52	$	718,751	$	(624,077	)	$	94,726
Issuance of common stock for exercise of stock options		64,458		—		101		—			101
Stock-based compensation		—		—		1,499		—			1,499
Issuance of common stock, net of offering costs of $3.2 million		21,850,000		22		45,974		—			45,996
Net loss		—		—		—		(11,525	)		(11,525	)
Balance—March 31, 2018		74,309,681	$	74	$	766,325	$	(635,602	)	$	130,797

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

SIERRA ONCOLOGY, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Three Months Ended March 31,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(11,525	)	$	(11,092	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		1,499			1,527
Depreciation		29			53
Other		41			35
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(795	)		568
Accrued liabilities		(1,261	)		(1,003	)
Accounts payable		(597	)		(1,452	)
Net cash used in operating activities		(12,609	)		(11,364	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		—			(78	)
Net cash used in investing activities		—			(78	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock uponfollow-on offering, net of offering costs		45,996			27,422
Proceeds from exercise of common stock options		101			23
Net cash provided by financing activities		46,097			27,445
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash		(20	)		2
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		33,468			16,005
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period		100,536			109,207
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	134,004		$	125,212
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	73		$	90
SUPPLEMENTAL DISCLOSURES OFNON-CASH INVESTING AND FINANCING INFORMATION:
Property and equipment purchases included in accrued liabilities	$	21		$	7
Offering costs included in accrued liabilities	$	209		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

SIERRA ONCOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. The Company and Basis of Presentation

Organization and Description of Business

Sierra Oncology, Inc. (together with its subsidiaries, collectively referred to as the “Company”), a Delaware corporation, is a clinical stage drug development company advancing targeted therapeutics for the treatment of patients with cancer. Sierra Oncology’s lead drug candidate is SRA737, a potent, highly selective, orally bioavailable small molecule inhibitor of Checkpoint kinase 1 (Chk1), a key regulator of cell cycle progression and the DNA Damage Response (DDR) replication stress response. Sierra Oncology is also advancing SRA141, a potent, selective and orally bioavailable small molecule inhibitor of cell division cycle 7 kinase (Cdc7) undergoing preclinical development.

The Company’s primary activities since inception have been conducting research and development activities, conducting preclinical and clinical testing, recruiting personnel, performing business and financial planning, identifying and evaluating additional drug candidates for potentialin-licensing or acquisition, and raising capital to support development activities.

The Company has not generated any product revenue related to its primary business purpose to date, nor has it generated any income, and is subject to a number of risks and uncertainties, which include dependence on key individuals, the need to identify and successfully develop commercially viable products, the need to obtain regulatory approval for its products and commercialize them, and the need to obtain adequate additional financing to fund the development of its product candidates.

Follow-On Offering

On March 6, 2018, the Company completed an underwritten public offering of an aggregate of 21,850,000 shares of common stock, including the underwriters’ exercise of their overallotment option, at a price to the public of $2.25 per share. The aggregate net proceeds received by the Company from the offering were $46.0 million, net of underwriting discounts and commissions and offering expenses of $3.2 million.

2. Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated balance sheet as of March 31, 2018, the condensed consolidated statements of operations for the three months ended March 31, 2018 and 2017, the condensed consolidated statements of cash flows for the three months ended March 31, 2018 and 2017 and the condensed consolidated statement of stockholders’ equity as of March 31, 2018 are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s condensed consolidated financial statements included in this report. The condensed consolidated financial data disclosed in these notes to the condensed consolidated financial statements related to the three-month periods are also unaudited. The condensed consolidated results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018, or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2017 included herein was derived from the audited consolidated financial statements as of that date. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form10-K for the year ended December 31, 2017, filed with the SEC on February 27, 2018.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expense during the reporting period. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to the fair value of stock options issued, accruals such as research and development costs, and recoverability of the Company’s net deferred tax assets and related valuation allowance. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

6

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is the U.S. Dollar. Transactions denominated in currencies other than the functional currency are recorded at prevailing exchange rates during the period. At the end of each reporting period, monetary assets and liabilities are remeasured to the functional currency using exchange rates in effect at the balance sheet date.Non-monetary assets and liabilities are recorded at historical exchange rates. Gains and losses related to remeasurement are recorded in other income in the condensed consolidated statements of operations. The net foreign exchange transaction gains (losses) included in other income in the accompanying condensed consolidated statements of operations was insignificant for the three months ended March 31, 2018 and 2017.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist primarily of funds invested in readily available checking and savings accounts and highly liquid investments in money market funds.

Restricted Cash

Restricted cash, which consists of funds invested in a money market fund, represents collateral for a corporate credit card facility. Restricted cash at December 31, 2017 also included security deposits required for a facility lease that expired in February 2018.

Concentrations of Credit Risk

Financial instruments that subject the Company to significant concentrations of credit risk consist of cash, cash equivalents and restricted cash. All of the Company’s cash, cash equivalents and restricted cash are held at financial institutions in the United States and Canada that management believes to be of high credit quality. Deposits held in the United States and Canada with these financial institutions exceed federally insured limits.

The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer and establishing a minimum allowable credit rating.

Comprehensive Loss

The Company had no components of comprehensive loss other than net loss for all periods presented.

Fair Value of Financial Instruments

The Company’s cash and cash equivalents, restricted cash, other current assets, accounts payable, and accrued liabilities approximate their fair value at March 31, 2018 and December 31, 2017, due to their short duration.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

7

Property and Equipment, Net

Property and equipment, net are stated at cost, less accumulated depreciation. Depreciation on property and equipment, excluding leasehold improvements, is computed using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Depreciation begins at the time the asset is placed in service. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the condensed consolidated balance sheet and the resulting gain or loss is reflected in the condensed consolidated statement of operations. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease term.

Other Assets

Other assets consist primarily of restricted cash pledged as collateral for a corporate credit card facility, and long-term prepaid rent and refundable deposits on office leases.

Research and Development Costs

Research and development costs are expensed as incurred. The Company accounts fornon-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made. Depending on the timing of payments to service providers of research and development costs, the Company recognizes prepaid expenses or accrued expenses related to these costs. These prepaid or accrued expenses are based on management’s estimates of the work performed under service agreements and milestones achieved. In the event that a clinical trial is terminated early, the Company records an accrual for the estimated remaining costs to complete the trial in the period of termination.

Upfront payments made in connection with license agreements are expensed as research and developments costs, as the assets acquired do not have alterative future use. Contingent milestone payment obligations due to third parties under license agreements are expensed when the milestones are considered probable of occurring.

Research and development costs include fees incurred in connection with license agreements, compensation and other related costs for employees engaged in research and development, costs associated with research and preclinical studies, clinical trials, regulatory activities, manufacturing activities to support clinical activities, fees paid to external service providers that conduct certain research and development, clinical, and manufacturing activities on behalf of the Company and an allocation of overhead expenses.

Stock-Based Compensation

The Company accounts for stock-based payments at fair value, which is measured using the Black-Scholes option-pricing model. For stock-based awards that vest subject to the satisfaction of a service requirement, the fair value measurement date for employee stock-based compensation awards is the date of grant and the expense is recognized on a straight-line basis over the vesting period.

For stock-based awards that vest subject to the satisfaction of a service requirement and a performance component, the fair value measurement date is the date of grant and is recognized over the requisite service period as achievement of the performance objective becomes probable.

Stock-based compensation arrangements withnon-employees are recognized at the grant date and remeasured to fair value at each reporting period. The expense is recognized over the vesting period, which is generally the service period.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Management makes an assessment of the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company’s historical operating performance and the recorded cumulative net losses in prior fiscal periods, the net U.S. deferred tax assets have been offset by a full valuation allowance.

The Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Changes in recognition or measurement are reflected in the period in which judgment occurs. The Company recognizes interest and penalties related to the underpayment of income taxes as a component of provision for income taxes.

8

Segment Information

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer.

The Company’s Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is the business of researching, developing and commercializing therapies for the treatment of patients with cancer. Accordingly, the Company has a single reporting segment.

Recent Accounting Pronouncements Not Yet Effective

In February 2016, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU)No. 2016-02,Leases (Topic 842). The amendments in this update require that organizations recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company will adopt the new standard effective January 1, 2019 and expects its operating leases, as disclosed in Note 6 “Commitments and Contingencies”, to be subject to the new standard. The Company willrecognize right-of-use assets and operating lease liabilities on its consolidated balance sheets upon adoption, which will increase its total assets and liabilities.

3. Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period without consideration for common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, stock options are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. As of March 31, 2018 and March 31, 2017, 10,202,831 and 7,615,052 outstanding options to purchase common stock, respectively, were excluded from the calculation of diluted net loss per share for the periods presented because including them would have been antidilutive.

4. Fair Value Measurements

The Company measures and reports its cash equivalents and restricted cash at fair value. The following table sets forth the fair value of the Company’s financial assets measured on a recurring basis by level within the fair value hierarchy:

	March 31, 2018
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Money market funds	$	133,448	$	—	$	—	$	133,448
Restricted money market funds		175		—		—		175
Total financial assets	$	133,623	$	—	$	—	$	133,623

	December 31, 2017
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Money market funds	$	99,792	$	—	$	—	$	99,792
Restricted money market funds		187		—		—		187
Total financial assets	$	99,979	$	—	$	—	$	99,979

9

Money market funds and restricted money market funds are measured at fair value on a recurring basis using quoted prices and are classified as a Level 1 input.

There were no transfers between Levels 1, 2 or 3 during the three months ended March 31, 2018.

5. Balance Sheet Components

Cash and Cash Equivalents

Cash and cash equivalents consist of the following:

	March 31, 2018		December 31, 2017
	(in thousands)
Cash	$	381	$	556
Cash equivalents:
Money market accounts		133,448		99,792
Total cash and cash equivalents	$	133,829	$	100,348

In November 2016, the FASB issued new guidance ASUNo. 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash, which requires thebeginning-of-period andend-of-period totals on the statement of cash flows to include restricted cash and restricted cash equivalents, as well as disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. The company adopted the guidance effective January 1, 2018 retrospectively to all periods presented. As a result, the condensed consolidated statement of cash flows no longer presents transfers to or from restricted cash.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows.

	March 31, 2018		March 31, 2017
	(in thousands)
Cash and cash equivalents	$	133,829	$	125,025
Restricted cash included in other assets		175		187
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statement of cash flows	$	134,004	$	125,212

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

	March 31, 2018		December 31, 2017
	(in thousands)
Prepaid research and development project costs	$	1,242	$	549
Prepaid insurance		276		478
Other receivables		328		103
Other		313		247
Total prepaid expenses and other current assets	$	2,159	$	1,377

10

Property and Equipment, net

Property and equipment, net consists of the following:

	March 31, 2018			December 31, 2017
	(in thousands)
Software	$	273		$	254
Computer equipment		93			93
Leasehold improvements		79			79
Furniture and fixtures		3			3
Property and equipment, gross		448			429
Less: accumulated depreciation		(304	)		(275	)
Total property and equipment, net	$	144		$	154

Depreciation related to the Company’s property and equipment was $29,000 and $0.1 million for the three months ended March 31, 2018 and 2017, respectively.

Accrued Liabilities

Accrued liabilities consist of the following:

	March 31, 2018		December 31, 2017
	(in thousands)
Accrued research and development costs	$	2,994	$	2,763
Accrued employee-related costs		862		2,699
Accrued professional fees		753		317
Accrued restructuring costs (Note 10)		99		137
Other		190		217
Total accrued liabilities	$	4,898	$	6,133

6. Commitments and Contingencies

License Agreements

In September 2016, the Company entered into an exclusive license agreement with CRT Pioneer Fund LP (CPF) for worldwide rights,know-how and materials to develop SRA737, a small molecule inhibitor targeting Chk1, a promising therapeutic target to treat cancer. Pursuant to the agreement, the Company made aone-time upfront payment of $7.0 million to CPF in October 2016 and paid $2.0 million to CPF in January 2017 for the successful transfer of two ongoing Phase I clinical trials. The expense related to these payments was included in research and development for the year ended December 31, 2016. Additional milestone payments of up to an aggregate of $319.5 million may become payable to CPF upon the achievement of certain developmental, regulatory and commercial milestones, and will be accrued once they are considered probable of occurring. In addition, the Company is required to pay CPF, on aproduct-by-product andcountry-by-country basis, tiered high single-digit to low double-digit royalties on the net sales of any product successfully developed.

In May 2016, the Company entered into an exclusive license agreement (Carna License Agreement) with Carna Biosciences, Inc. (Carna) for worldwide rights to develop and commercialize SRA141, a small molecule kinase inhibitor targeting Cdc7. In exchange for this exclusive right, the Company paid Carna an upfront payment of $0.9 million in June 2016. The Company will be required to pay Carna milestone payments of up to an aggregate of $270.0 million upon achievement of certain developmental, regulatory and commercial milestone events, which will be accrued once they are considered probable of occurring. As of March 31, 2018, the Company had not recorded any milestone payments to Carna. In addition, the Company is required to pay Carna tiered single-digit royalties on net sales of product candidates (as defined under the Carna License Agreement).

11

Lease Agreements

In February 2015, the Company entered into an operating lease agreement to sublease office space in Vancouver, Canada. Under the terms of the agreement, the Company issued a letter of credit to the sublessor on closing, which was collateralized by a restricted deposit. The operating lease agreement together with the restricted deposit expired on February 2018. In June 2017, the Company entered into a new operating lease agreement to continue leasing the office space in Vancouver, Canada commencing March 1, 2018. The new lease expires on February 28, 2023 and can be extended for an additional term of 5 years.

In January 2016, the Company entered into an operating lease agreement to lease office space near San Francisco, California. The operating lease agreement expires on April 30, 2019. In September 2017, the Company entered into a sublease agreement to sublet the premises to a third party until April 30, 2019. The fair value of the remaining contractual obligation, net of sublease income, was included in accrued liabilities in the accompanying condensed consolidated balance sheet as of March 31, 2018.

In addition to base rent, these leases require payment of taxes and other operating costs. These operating costs are not included in the table below.

As of March 31, 2018, the aggregate futurenon-cancelable minimum lease payments associated with these operating leases are as follows:

Years Ending December 31:	Operating Leases
	(in thousands)
Remainder of 2018	$	307
2019		266
2020		220
2021		223
2022		178
Thereafter		—
Total(a)	$	1,194

(a) Minimum lease payments have not been reduced by minimum sublease rentals of $0.1 million due in the future under sublease.

The total rent expense was $0.1 million for the three months ended March 31, 2018 and 2017.

Legal

On November 9, 2016, a purported securities class action lawsuit was filed in the United States District Court for the Southern District of New York against the Company and certain of its executive officers (the New York Lawsuit). The New York Lawsuit was brought by purported stockholders of the Company seeking to represent a class consisting of stockholders who purchased stock between July 15, 2015 and June 6, 2016. The New York Lawsuit asserts claims under Sections 10(b) and 20(a) of the Exchange Act and seeks unspecified damages and other relief. On March 13, 2018, the United States District Court for the Southern District of New York granted the defendants’ motion to dismiss and entered a final judgment dismissing the New York Lawsuit with prejudice. Plaintiffs have filed a notice of appeal. The Company believes that the claims in the New York Lawsuit are without merit and intends to defend the lawsuit vigorously. It is possible that additional similar lawsuits could be filed. Due to the early stage of the litigation, the Company is unable to predict the outcome of this matter and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

On November 18, 2016, a purported securities class action lawsuit was filed in the Superior Court of the State of California for the County of San Mateo against the Company, certain of its executive officers and directors, and the underwriters for the Company’s initial public offering of its common stock. On February 9, 2017, a substantially identical putative class action suit was filed in the Superior Court of the State of California for the County of San Mateo asserting the same claims on behalf of the same putative class (the two lawsuits together, the California Lawsuits). The California Lawsuits were brought by purported stockholders of the Company seeking to represent a class consisting of stockholders who purchased stock pursuant to and/or traceable to the Company’s Registration Statement on FormS-1. The lawsuits assert claims under Sections 11 and 15 of the Exchange Act and seek unspecified damages and other relief. The California Lawsuits remain pending. The Company believes that the claims are without merit and intends to defend the California Lawsuits vigorously. It is possible that additional similar lawsuits could be filed. Due to the early stage of the litigation, the Company is unable to predict the outcome of these cases and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

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From time to time, the Company may become subject to other legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any other material legal proceedings, nor is it aware of any pending or threatened litigation that, in the Company’s opinion, would have a material adverse effect on the business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

7. Common Stock Reserved for Issuance

The Company is required to reserve and keep available out of its authorized but unissued shares of common stock a number of shares sufficient to effect the conversion of all outstanding options granted and available for grant under the incentive plans and shares reserved for issuance under the employee stock purchase plan.

	March 31, 2018		December 31, 2017
Outstanding stock options		10,202,831		7,470,601
Shares reserved for future option grants		802,890		1,503,770
Shares reserved under the 2015 employee stock purchase plan		700,000		700,000
Total common stock reserved for issuance		11,705,721		9,674,371

8. Stock-Based Compensation

In the accompanying condensed consolidated statements of operations, the Company recognized stock-based compensation expense for its employees andnon-employees as follows:

	Three Months Ended March 31,
	2018		2017
	(in thousands)
Research and development	$	998	$	1,013
General and administrative		501		514
Total stock-based compensation	$	1,499	$	1,527

Determination of Fair Value

The estimated grant-date fair values of all of the Company’s stock-based awards were calculated using the Black-Scholes option pricing model, based on assumptions as follows:

	Three Months Ended March 31,
	2018	2017
Expected term (in years)	5.4 – 6.9	5.4 –7.0
Expected volatility	88 – 91%	89 – 96%
Risk-free interest rate	2.7 – 2.8%	2.0 – 2.3%
Expected dividend rate	—%	—%

Equity Incentive Plans

2015 Plan

The 2015 Equity Incentive Plan (2015 Plan) became effective on July 14, 2015. As of March 31, 2018, 8,621,853 shares were reserved for issuance under the 2015 Plan. The number of shares reserved for issuance under the 2015 Plan will increase automatically on January 1 of each calendar year 2016 through 2025 by the number of shares equal to 4% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31. The Company’s Board of Directors or Compensation Committee may reduce the amount of the increase in any particular year. The exercise price of each stock-based award issued under the 2015 Plan is required to be no less than the fair value of the Company’s capital stock. The vesting and exercise provisions of options or restricted awards granted are determined individually with each grant. Stock options have a10-year life and expire if not exercised within that period or if not exercised within three months of cessation of employment with the Company or such longer period of time as specified in the option agreement.

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2008 Plan

The Company granted options under the 2008 Stock Plan (2008 Plan) until July 2015 when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding under the 2008 Plan. The 2008 Plan provided for the granting of Incentive Stock Options (ISO), nonqualified stock options and stock purchase rights. In connection with the Board of Director’s approval of the 2015 Plan, all remaining shares available for future award under the 2008 Plan were transferred to the 2015 Plan, and the 2008 Plan was terminated.

A summary of activity under the 2008 Plan and 2015 Plan and related information is as follows:

				Options Outstanding
	Shares Available for Grant			Number of Shares Outstanding			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value of Outstanding Options (in thousands)
Outstanding — December 31, 2017		1,503,770			7,470,601		$	3.09		8.12	$	12,363
Awards authorized		2,095,808
Options granted		(2,854,350	)		2,854,350			2.36
Options exercised		—			(64,458	)		1.57
Options forfeited/cancelled		57,662			(57,662	)		5.65
Outstanding — March 31, 2018		802,890			10,202,831		$	2.88		8.45	$	3,050
Exercisable — March 31, 2018					4,582,347		$	3.00		7.54	$	2,198
Vested and expected to vest — March 31, 2018					10,202,831		$	2.88		8.45	$	3,050

The weighted-average grant date fair values of options granted during the three months ended March 31, 2018 and 2017 was $1.76 and $1.12 per share, respectively. The aggregate intrinsic value of options exercised was $0.1 million for the three months ended March 31, 2018 and 2017. The total grant date fair value of options vested for the three months ended March 31, 2018 and 2017 was $1.7 million and $2.2 million, respectively.

As of March 31, 2018, total unrecognized stock-based compensation related to unvested stock options was $12.6 million. These costs are expected to be recognized over a remaining weighted-average period of 2.4 years as of March 31, 2018.

2015 Employee Stock Purchase Plan

The Company adopted the 2015 Employee Stock Purchase Plan (ESPP) and initially reserved 700,000 shares of common stock as of its effective date of July 15, 2015. The number of shares initially reserved for issuance under the ESPP will increase automatically on January 1 for nine years from the first offering date by the number of shares equal to 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31. The aggregate number of shares issued over the term of the 2015 Employee Stock Purchase Plan will not exceed 3,400,000 shares of common stock.

Under the ESPP, participants are offered the option to purchase shares of the Company’s common stock at a 15% discount during a series of discrete offering periods, subject to any plan limitations. The ESPP will not become effective until such time as the Compensation Committee determines in the future, and as of March 31, 2018, the initial offering periods had not commenced. As of March 31, 2018, no shares of common stock have been issued to employees participating in the ESPP and 700,000 shares were available for issuance under the ESPP.

9. Income Taxes

The Company did not record a provision for U.S. federal income taxes for the three months ended March 31, 2018 because it expects to generate a loss for the year ended December 31, 2018. The income tax expense of $43,000 and $34,000 for the three months ended March 31, 2018 and 2017, respectively, represented foreign taxes. The Company’s net U.S. deferred tax assets continue to be offset by a full valuation allowance.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act significantly revises U.S. tax law by, among other provisions, lowering the U.S. federal statutory income tax rate from 35% to 21%, changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017 and eliminating or reducing certain income tax deductions.

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The effects of changes in tax laws are required to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the Tax Act’s provisions, the FASB issued ASUNo. 2018-06,Income Taxes (Topic 740)pursuant tothe SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows companies to record the tax effects of the Tax Act on a provisional basis based on a reasonable estimate, and then, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from enactment.

In connection with the Company’s initial analysis of the Tax Act, it recorded a decrease of its net deferred tax assets of $7.2 million for the period ended December 31, 2017, to account for the rate reduction. This did not have an impact on the Company’s financial statements since its U.S. deferred tax assets are fully offset by a valuation allowance. However, given the significant complexity of the Tax Act, these estimates may be adjusted during the measurement period.

10. Restructuring Costs

In June 2016, the Company halted investment in PNT2258 and closed the related Phase 2 clinical trials to further enrollment. As a result, the Company closed its research facility in Plymouth, Michigan, renegotiated and terminated certain contracts, and implemented staff reductions in the United States and Canada.

The following table summarizes restructuring activities for the three months ended March 31, 2018:

	Contract Termination
	(in thousands)
Accrual balance at December 31, 2017	$	137
Cash payments		(38	)
Accrual balance at March 31, 2018	$	99

The accrual balance is currently expected to be substantially paid by the end of 2018.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this quarterly report and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2017, included in our Annual Report on Form10-K. This discussion and other parts of this quarterly report contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included in our Annual Report on Form10-K for the year ended December 31, 2017.

Overview

We are a clinical stage drug development company advancing targeted therapeutics for the treatment of patients with cancer. We are focused on developing an emerging pipeline of next generation therapies that target the DNA Damage Response (DDR) network. We have a highly experienced management team with a proven track record of success in oncology drug development. We are an ambitious company, oriented towards achieving the successful registration and commercialization of our product candidates.

Our lead product candidate, SRA737, is a potent, highly selective, orally bioavailable small molecule inhibitor of Checkpoint kinase 1 (Chk1). Chk1 is a key regulator of cell cycle progression and the DDR replication stress response. In cancer cells, intrinsic replication stress is induced by factors such as oncogenes (e.g.,MYC orCCNE1), genetic mutations in DNA repair machinery (e.g.,BRCA1 orFANCA), genetic mutations leading to a dysregulated cell cycle (e.g.,TP53 orRAD50) or other genomic alterations. This replication stress results in persistent DNA damage and genomic instability leading to an increased dependency on Chk1 for survival. Targeted inhibition of Chk1 by SRA737 may therefore be synthetically lethal to cancer cells with elevated intrinsic replication stress and have utility as a monotherapy in a range of tumor indications.

The combination of SRA737 with other modalities, such as other agents that target the DDR network and certain chemotherapeutics, may also provide synergistic anti-tumor activity via a variety of potential biological mechanisms. Importantly, the oral bioavailability of SRA737 may afford greater dosing flexibility for both monotherapy and combination therapy settings than is possible with intravenously administered agents.

We are pursuing an innovative development plan for SRA737, which is currently being evaluated in two Phase 1/2 clinical trials in patients with advanced cancer. OurSRA737-01 trial is intended to evaluate SRA737’s potential to induce synthetic lethality as monotherapy, while theSRA737-02 trial is intended to evaluate the combination of SRA737 potentiated by subtherapeutic,low-dose gemcitabine.

In January 2017, we successfully transferred sponsorship of these two trials from the prior sponsor to the company and in May 2017, we received clearance to enhance these studies by incorporating the prospective enrollment of patients with genetically-defined tumors that harbor genomic alterations hypothesized to confer sensitivity to Chk1 inhibition via synthetic lethality. In June 2017, we presented these innovative clinical designs in two Trials in Progress posters at the 2017 American Society of Clinical Oncology (ASCO) Annual Meeting.

On February 27, 2018, we provided an update on our SRA737 and SRA141 development programs. For theSRA737-01 Phase 1/2 Monotherapy trial, we reported that the Dose Escalation Phase 1 portion of the study was in the final stages of optimizing the SRA737 dose regimen and the Cohort Expansion Phase 2 portion was ongoing. We reported that the Phase 2 portion of the study was being expanded to include a sixth indication (CCNE1-driven ovarian cancer) and that target enrollment for the Phase 2 portion would total 120 patients across six genetically-defined cohorts. We also reported that we would be expanding the number of sites recruiting patients into the trial from three active sites (as of the third quarter of 2017) to fifteen active sites at leading centers across the United Kingdom. The Cohort Expansion Phase 2 portion of the study is expected to report preliminary data in the fourth quarter of 2018.

For theSRA737-02 Phase 1/2Low-Dose Gemcitabine Combination trial, we reported significant progress in the Dose Escalation Phase 1 portion of the study. Subsequent to the end of the quarter, we commenced the Cohort Expansion Phase 2 portion of the study which is targeting enrollment of 80 genetically-selected patients across four indications. An update on the study is expected to be reported in the fourth quarter of 2018.

Concurrently, we are designing clinical trials and conducting preclinical research evaluating SRA737 in combination with otherDDR-targeted agents, including polyADP-ribose polymerase (PARP) inhibitors, as well as with immuno-oncology therapeutics, that will guide the next planned wave of clinical development for our asset, potentially further broadening its therapeutic utility. In the first

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quarter of 2018, we announced an agreement with Janssen Research & Development, LLC (Janssen), under which they have agreed to supply us with TESARO’s ZEJULA^® (niraparib), facilitating the planned initiation of a PARP inhibitor combination trial with SRA737 for the treatment of prostate cancer in the fourth quarter of 2018. We are also currently designing a clinical study evaluating SRA737 in combination with immuno-oncology agents, which potentially could be submitted to regulatory authorities in the fourth quarter of 2018.

We are also advancing SRA141, a potent, selective, orally bioavailable small molecule inhibitor of cell division cycle 7 kinase (Cdc7). Cdc7 is a key regulator of DNA replication and is involved in the DDR network, making it a compelling emerging target for the potential treatment of a broad range of tumor types. SRA141 is currently undergoing preclinical research in preparation for an Investigational New Drug Application (IND) submission to the U.S. Food and Drug Administration (FDA) expected in the second half of 2018.

We retain the global commercialization rights to both SRA737 and SRA141.

Since inception, we have devoted substantially all of our resources to research and development activities, including the clinical development of our current product candidates SRA737 and SRA141 and our former product candidate PNT2258, and providing general and administrative support for these operations. We have never generated revenue and have incurred significant net losses since inception. Our net losses were $11.5 million and $11.1 million for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, we had an accumulated deficit of $635.6 million. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:

• invest to further develop our product candidates, SRA737, a small molecule inhibitor targeting Chk1 and SRA141, a small molecule inhibitor targeting Cdc7;

• achieve development milestones that trigger payments due to our licensors;

• acquire orin-license additional product candidates and technologies;

• develop additional product candidates;

• hire additional clinical, scientific, drug development and management personnel, as well as personnel to support any future commercialization efforts;

• invest in scaling our manufacturing capacity to support development and our global commercialization strategy;

• seek regulatory and marketing approvals for any product candidates that we may develop;

• ultimately establish a sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval;

• defend against and resolve lawsuits or other legal issues;

• maintain, expand and protect our intellectual property portfolio; and

• add operational, financial and management information systems and personnel to continue to operate as a public company.

On March 6, 2018, we completed an underwritten public offering of an aggregate of 21,850,000 shares of common stock at a price to the public of $2.25 per share. The aggregate net proceeds received by us from the offering were $46.0 million, net of underwriting discounts and commissions and offering expenses of $3.2 million.

We have funded our operations to date primarily from the issuance and sale of our common stock through public offerings, and our convertible and redeemable convertible preferred stock in private financings and, to a lesser extent, through debt financings and exercises of our preferred stock warrants. As of March 31, 2018, we had cash and cash equivalents of $133.8 million.

Components of Statements of Operations

Operating Expenses

Research and Development

Research and development expenses consist primarily of the following:

• fees or milestone payments incurred in connection with license agreements;

• personnel-related costs, which include salaries, benefits, stock-based compensation, recruitment fees and travel costs;

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• costs associated with research and preclinical studies, clinical trials, regulatory activities and manufacturing activities to support clinical activities;

• fees paid to external service providers that conduct certain research and development, clinical and manufacturing activities on our behalf; and

• facility-related costs, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expenses and other supplies.

The largest recurring component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our current product candidates SRA737 and SRA141. We expect our research and development expenses will increase over the next few years as we advance our development programs, achieve development milestones that trigger payments due to our licensors, pursue regulatory approval of our product candidates in the United States and other jurisdictions, expand our portfolio of product candidates and prepare for potential commercialization, which will require a significant investment in areas related to contract manufacturing and inventory buildup.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for SRA737, SRA141 or any future product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, regulatory developments, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization of SRA737, SRA141 or any future product candidates.

General and Administrative

General and administrative expenses consist of personnel-related costs, facility-related costs, allocated expenses and professional fees for services, including legal, patent prosecution and maintenance, human resources, audit and accounting services. Personnel-related costs consist of salaries, benefits, stock-based compensation, recruitment fees, severance costs and travel costs.

We expect to incur additional expenses associated with supporting our growing research and development activities, operating as a public company and other administration and professional services.

Other Income

Other income primarily consists of interest and dividends earned on our cash and cash equivalents, as well as foreign currency exchange gains and losses. Foreign currency exchange gains and losses relate to transactions and monetary asset and liability balances denominated in currencies other than the U.S. dollar. Foreign currency gains and losses may continue to fluctuate in the future due to changes in foreign currency exchange rates.

Provision for Income Taxes

Provision for income taxes consists of federal and state income taxes in the United States and income taxes in Canada and Australia, as well as deferred income taxes and changes in related valuation allowance, reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

We did not record a provision for U.S. federal income taxes for the three months ended March 31, 2018 because we expect to generate a loss for the year ended December 31, 2018. Our tax expense relates to income taxes in Canada and Australia. Our net U.S. deferred tax assets continue to be offset by a full valuation allowance.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act significantly revises U.S. tax law by, among other provisions, lowering the U.S. federal statutory income tax rate from 35% to 21%, changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017 and eliminating or reducing certain income tax deductions.

The effects of changes in tax laws are required to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the Tax Act’s provisions, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU)No. 2018-06,Income Taxes (Topic 740)pursuant tothe SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows companies to record the tax effects of the Tax Act on a provisional basis based on a reasonable estimate, and then, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from enactment.

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In connection with our initial analysis of the Tax Act, we recorded a decrease to our net deferred tax assets of $7.2 million for the period ended December 31, 2017, to account for the rate reduction. This did not have an impact on the financial statements since our U.S. deferred tax assets are fully offset by a valuation allowance. However, given the significant complexity of the Tax Act, these estimates may be adjusted during the measurement period.

Results of Operations

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

	Three Months Ended March 31,						Change $
	2018			2017
	(in thousands)
Operating expenses:
Research and development	$	8,334		$	8,008		$	326
General and administrative		3,420			3,146			274
Total operating expenses		11,754			11,154			600
Loss from operations		(11,754	)		(11,154	)		(600	)
Other income		272			96			176
Loss before provision for income taxes		(11,482	)		(11,058	)		(424	)
Provision for income taxes		43			34			9
Net loss	$	(11,525	)	$	(11,092	)	$	(433	)

Research and Development

Research and development expenses increased $0.3 million, from $8.0 million for the three months ended March 31, 2017, to $8.3 million for the three months ended March 31, 2018. The increase was primarily due to a $1.7 million increase in clinical trial costs for the three months ended March 31, 2018. These increased costs were partially offset by a $0.9 million decrease in third party manufacturing costs related to SRA737 and SRA141, and a $0.5 million decrease in research, preclinical and other support costs.

General and Administrative

General and administrative expenses increased $0.3 million, from $3.1 million for the three months ended March 31, 2017 to $3.4 million for the three months ended March 31, 2018. The increase was primarily attributable to an increase in personnel-related costs and professional fees for the three months ended March 31, 2018.

Liquidity and Capital Resources

Capital Resources

Since our inception, we have never generated revenue and have incurred significant net losses. Our net losses for the three months ended March 31, 2018 and 2017 were $11.5 million and $11.1 million, respectively. As of March 31, 2018, we had an accumulated deficit of $635.6 million. Our principal sources of liquidity as of March 31, 2018 were cash and cash equivalents of $133.8 million.

On March 6, 2018, we completed an underwritten public offering of an aggregate of 21,850,000 shares of common stock at a price to the public of $2.25 per share. The aggregate net proceeds received by us from the offering were $46.0 million, net of underwriting discounts and commissions and offering expenses of $3.2 million.

As of March 31, 2018, we did not have any outstanding borrowings or any debt arrangements.

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We expect to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:

• invest to further develop our product candidates, SRA737, a small molecule inhibitor of Chk1 and SRA141, a small molecule inhibitor targeting Cdc7;

• achieve development milestones that trigger payments due to our licensors;

• acquire orin-license additional product candidates and technologies;

• develop additional product candidates;

• hire additional clinical, scientific, drug development and management personnel, as well as personnel to support any future commercialization efforts;

• invest in scaling our manufacturing capacity to support development and our global commercialization strategy;

• seek regulatory and marketing approvals for any product candidates that we may develop;

• ultimately establish a sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval;

• defend against and resolve lawsuits or other legal issues;

• maintain, expand and protect our intellectual property portfolio; and

• add operational, financial and management information systems and personnel to continue to operate as a public company.

To fund our current operating plans, we will need to raise additional capital. Our existing cash and cash equivalents will not be sufficient for us to complete development of our product candidates and, if applicable, to prepare for commercializing any product candidate that may receive approval. Accordingly, we will continue to require substantial additional capital to continue our clinical development and potential commercialization activities; however, we believe that our existing cash and cash equivalents will be sufficient to fund our current operating plans through approximatelymid-2020. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts.

We plan to continue to fund our current operating plans’ needs through equity financings or other arrangements. To the extent that we raise additional capital through future equity financings, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. There can be no assurance that such additional financing, if available, can be obtained on terms acceptable to us. If we are unable to obtain such additional financing, we would need to reevaluate our future operating plans.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

	Three Months Ended March 31,
	2018			2017
	(in thousands)
Cash used in operating activities	$	(12,609	)	$	(11,364	)
Cash used in investing activities		—			(78	)
Cash provided by financing activities		46,097			27,445
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash		(20	)		2
Net increase in cash, cash equivalents and restricted cash	$	33,468		$	16,005

Cash Flows from Operating Activities

For the three months ended March 31, 2018, cash used in operating activities of $12.6 million was attributable to a net loss of $11.5 million, partially offset by $1.6 million innon-cash charges and a net change of $2.7 million in our net operating assets and liabilities. Thenon-cash charges consisted primarily of $1.5 million in stock-based compensation. The change in net operating assets and liabilities was primarily attributable to a decrease in our accounts payable and accrued liabilities of $1.9 million and an increase in prepaid expenses and other assets of $0.8 million.

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For the three months ended March 31, 2017, cash used in operating activities of $11.4 million was attributable to a net loss of $11.1 million, partially offset by $1.6 million innon-cash charges and a net change of $1.9 million in our net operating assets and liabilities. Thenon-cash charges consisted primarily of $1.5 million in stock-based compensation. The change in net operating assets and liabilities was primarily attributable to a $2.0 million payment to CRT Pioneer Fund (CPF) pursuant to our license agreement with CPF upon the successful transfer of the SRA737 clinical trials to us.

Cash Flows from Investing Activities

There were no investing activities for the three months ended March 31, 2018. For the three months ended March 31, 2017, cash used in investing activities of $0.1 million was primarily attributable to the purchase of property and equipment.

Cash Flows from Financing Activities

For the three months ended March 31, 2018 and 2017, cash provided by financing activities of $46.1 million and $27.4 million, respectively, was primarily attributable to net proceeds received from the sale and issuance of our common stock upon ourfollow-on offerings.

Off-Balance Sheet Arrangements

We do not currently engage inoff-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes special purpose entities and other structure finance entities.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with research and development expenses and stock-based compensation have the most significant impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Operations included in our Annual Report on Form10-K for the year ended December 31, 2017.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities and foreign currency risk.

Interest Rate Sensitivity

We had cash and cash equivalents of $133.8 million as of March 31, 2018, which consisted primarily of bank deposits and money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our condensed consolidated financial condition or results of operations. We do not believe that our cash or cash equivalents have significant risk of default or illiquidity.

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Foreign Currency Risk

Our condensed consolidated results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. A substantial majority of our expenses are denominated in U.S. Dollars, with the remainder in Canadian Dollars, British Pounds and Australian Dollars. Our condensed consolidated results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative instruments. The effect of a hypothetical 10% change in foreign currency exchanges rates applicable to our business would not have a material impact on our operating loss.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Exchange Act, as amended) as of the end of the period covered by this Quarterly Report on Form10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2018 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosures.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule13a-15(d) and15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

On November 9, 2016, a purported securities class action lawsuit was filed in the United States District Court for the Southern District of New York against us and certain of our executive officers (the New York Lawsuit). The New York Lawsuit was brought by purported stockholders of our company seeking to represent a class consisting of stockholders who purchased stock between July 15, 2015 and June 6, 2016. The New York Lawsuit asserts claims under Sections 10(b) and 20(a) of the Exchange Act and seeks unspecified damages and other relief. On March 13, 2018, the United States District Court for the Southern District of New York granted the defendants’ motion to dismiss and entered a final judgment dismissing the New York Lawsuit with prejudice. Plaintiffs have filed a notice of appeal. We believe that the claims in the New York Lawsuit are without merit and intend to defend the lawsuit vigorously. Due to the early stage of the litigation, we are unable to predict the outcome of this matter and are unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

On November 18, 2016, a purported securities class action lawsuit was filed in the Superior Court of the State of California for the County of San Mateo against us, certain of our executive officers and directors, and the underwriters for our initial public offering of our common stock. On February 9, 2017, a substantially identical putative class action suit was filed in the Superior Court of the State of California for the County of San Mateo asserting the same claims on behalf of the same putative class (the two California lawsuits together, the California Lawsuits). The California Lawsuits were brought by purported stockholders of our company seeking to represent a class consisting of stockholders who purchased stock pursuant to and/or traceable to our Registration Statement on FormS-1. The lawsuits assert claims under Sections 11 and 15 of the Exchange Act and seek unspecified damages and other relief. The California Lawsuits remain pending. We believe that the claims are without merit and intend to defend the California Lawsuits vigorously. It is possible that additional similar lawsuits could be filed. Due to the early stage of the litigation, we are unable to predict the outcome of these cases and are unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

From time to time, we may become involved in various other claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any other legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors set forth in our Annual Report onForm 10-K for the year ended December 31, 2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Use of Proceeds

On July 15, 2015, our Registration Statement on FormS-1 (FileNo. 333-204921) relating to the IPO of our common stock was declared effective by the SEC. Pursuant to such Registration Statement, we sold an aggregate of 9,315,000 shares of our common stock at a price of $17.00 per share for aggregate cash proceeds of approximately $143.6 million, net of underwriting discounts and commissions and offering costs.

In June 2016, we halted investment in PNT2258, our former lead product candidate, based on our review of the interim results from a Phase 2 trial of PNT2258. Accordingly, we now intend to use the remaining net proceeds from our IPO to advance the development of product candidates SRA737 and SRA141, acquire orin-license additional product candidates and technologies and for other general corporate purposes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits filed or furnished as part of this Quarterly Report on Form10-Q are set forth below. Where so indicated by footnote, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.

			Incorporated by Reference			Filed/ Furnished Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit No.	Exhibit Filing Date
31.1	Certification of Principal Executive Officer, pursuant to Rule13a-14(a)/15d-14(a), as adopted pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer, pursuant to Rule13a-14(a)/15d-14(a), as adopted pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.					X
32.1*	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2*	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	XBRL Instance Document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document.					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					X

* This certification is deemed not filed for purpose of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SIERRA ONCOLOGY, INC
Date: May 10, 2018	By:	/s/ Nick Glover
		Dr. Nick Glover
		President and Chief Executive Officer (Principal Executive Officer)

Date: May 10, 2018	By:	/s/ Sukhi Jagpal
		Sukhi Jagpal
		Chief Financial Officer (Principal Financial Officer)

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